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2012 Final Exam

Be sure to indicate what model you use (and alternative models that you don’t use or believe are inappropriate for the case at hand).
Graphs and equations never hurt – it’s even better if they’re the right ones for the problem at hand and the details are correct. (You still may pick up partial points…)

Wield jargon appropriately: budding economists avoid plain prose. Such obfuscation wins points, because it shows that you are a diligent apprentice [Lehrjunge], if not a full-fledged journeyman [Geselle]. (Tenured guild masters earn greater freedom.)

Illustrations and analogies to concrete examples reinforce the claim that industrial organization provides a framework for grappling with the complexity of the real world.

A. The basic model

• Draw the basic model of a firm with market power. Indicate equilibrium price, quantity, (gross) profit, CS, PS and DWL.

• Under what conditions might this represent a long-run equilibrium?

B: Vertical Issues

“Firms should vertically integrate whenever possible.”

C. Price discrimination & bundling

“Efficiency considerations drive the decision to charge different prices for beer by the case, in six-packs, in single cans and in kegs.”

D. Patents and Technology

“Once granted, patents should be subject to annual renewal, with the fee rising 50% each year.” Analyze the potential benefits might this policy bring, compared to our current one of a standard 20 year patent.

E. Advertising

“Advertising in the beer industry is good for consumers and good for producers.”

F. Beer – choose one of the following

“As the beer industry illustrates, mergers never make sense.”
“Greater product differentiation is to the detriment of consumers.”

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